Goal Be To Pay Down A Multi Family Mortgage?
A multi family mortgage used to acquire, rehab or refinance
should not be treated like the mortgage on your home. Let me explain.
If you are like most people, your objective when it comes to the
mortgage on your home is to pay down the principal as soon as
possible. The ultimate goal is to completely pay off the mortgage and
no longer have that expense in your life.
On the other hand, your goal when it comes to a multi family mortgage
on the apartment property you are acquiring or refinancing should be
different. Your number one goal should be to get the monthly payments of the
mortgage as low as possible. Why? Cash flow.
In the real estate investment business (like an business),
CASH FLOW IS KING!
And mortgage payments are usually the single biggest killer of
There are a few ways to lower your monthly multifamily mortgage
First, and probably the most obvious, is to negotiate the lowest
interest rate that you can.
Second, stretch out the amortization period as long as you can. (You
should even consider stretching out the amortization period on a
mortgage refinance. I am doing this on a refinance right now where I am
pushing the amortization period out to 40 years from 15 and cutting my
payments in half.)
Third, opt for an interest only loan. By not having to pay an principal
each month, you will cut your payments significantly.
Now, before you go out and spend all that extra money each month on
trips to Hawaii and a fancy sports car, HOLD ON! That "extra" money
should be used to shore up your investment property emergency fund
and/or saved up for your net investment.
Here's a quick example of what I am doing with a multi family mortgage
refinance right now that will help illustrate my point.
I purchased an apartment complex 10 years ago and put a mortgage on it
with a 10 year term, amortized over 25 years. The monthly payments for
the past ten years have been $4,022 and there are now 15 years left on
the original amortization schedule.
It is now due for refinancing.
What I plan on doing is this. Instead of staying with the same
amortization schedule (with 15 years left) I am going to stretch that
schedule back out to 40 years. Doing this I will (with the help
of a slightly lower interest rate) cut my monthly payment to
under $2,000, adding close to $25,000 per annum to my cash flow
"But you will NEVER pay off that multi family mortgage!" you say.
I say, so what. I am in this investment mainly for the cash flow.
Besides I would rather have that money in my pocket for a rainy day.
And if I really want to pay off that mortgage? I sell the investment
Keep these points in mind next time you are shopping for a multi family
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